Financial institutions are currently unable to build, offer, process, and/or manage large quantities of user-customized financial products (e.g., customized certificates of deposit). This is due, in part, to the considerable expense associated with creating customized products, and the limitations of existing financial systems.
Moreover, even those systems that do offer products having differing product characteristics, do not provide the flexibility to allow customers to truly customize their products according to their specific needs and desires. Instead, these systems operate on the premise of offering static product catalogues. That is, they offer different products, each having differing product characteristics (e.g., traditional certificate of deposits, each with differing maturities and yields). Once these static products are defined, however, none of the products' characteristics may be modified or adjusted. In this regard, conventional systems treat financial products as closed entities having defined and unchangeable characteristics. Indeed, if changes to a particular product characteristic is desired, a new financial product must be defined to include the changed characteristic. The foregoing may be illustrated by the following example.
Suppose a financial institution offers a catalogue with two different products:
a. Product X: a 3-year certificate of deposit (CD) that pays a fixed annual coupon of 3%; and
b. Product Y: a 3-year CD that pays a variable coupon depending on the performance of the Standard and Poors (S&P) Index. The variable coupon may be defined as 50% of the positive performance of the S&P Index.
Using conventional systems, if a customer desired a product that combined certain characteristics of both Product X and Product Y, such as a 3-year CD paying a fixed coupon of 1% and a variable coupon based on the performance of the S&P Index, an entirely new product, say Product XY, would have to be defined to reflect the desired characteristics.
Notably, there could be an infinite number of combinations of Product X and Product Y that could be chosen by different customers depending on their particular risk profile and liquidity needs. With existing systems and technology, the financial institution would be forced to establish and offer each individual combination as a new, individual product structure. As will be appreciated by those of skill in the art, this can consume considerable time, effort and expense. Given these limitations, financial institutions simply do not offer such customization to their customers. Instead, financial institutions continue offering fixed or static product catalogues, which means that a customer may choose between the existing products in the product catalogue. However, customers are unable to customize any of the products to meet their specific needs.
Notwithstanding the foregoing, certain high net-worth customers may request that their financial institution prepare and define a financial product that includes a particular combination of characteristics. If such a product is not included in the institution's catalogue, the institution will have to separately define, create, hedge, and manage this product. Indeed, as explained above, existing systems are incapable of modifying existing products to reflect modified or adjusted product characteristics. As a result, the financial institution will have to go through the time and expense of defining an entirely new product, one that reflects the desired characteristics of its customer. Moreover, if another customer desired a slightly different product (e.g., one that includes slight modifications to an existing product's characteristics), another entirely new financial product would have to be defined, created, hedged, and managed. As a result, only customers willing to deposit significant amounts of money with their institution (i.e., to cover the expense of defining a new product) may have the privilege of requesting such a product.
Accordingly, it would be desirable to have systems and methods for creating user-customized financial products in an economically viable manner, without significant restrictions placed on the minimum transaction value and/or on the level of user customization associated therewith. Moreover, it would be desirable to have systems and methods for pricing, hedging, and managing user-customized financial products, through their entire life-cycle, in an economically efficient and viable manner.